Share Valuation

The primary legislation governing share valuation in India is the Companies Act, 2013, particularly Section 247 which mandates that valuation by a registered valuer is required for certain transactions. Additionally, the Securities and Exchange Board of India (SEBI) Regulations and the Income Tax Act, 1961 prescribe valuation rules for specific purposes such as issue of shares, mergers, and tax assessments. The Institute of Chartered Accountants of India (ICAI) also provides guidance on valuation methodologies.

The Ministry of Corporate Affairs (MCA) oversees the Companies Act and maintains the MCA21 portal (www.mca.gov.in) for filings related to share valuation. For listed companies, the Securities and Exchange Board of India (SEBI) (www.sebi.gov.in) regulates valuation norms. The Income Tax Department (www.incometax.gov.in) also uses valuation for tax purposes. Valuers must be registered with the Insolvency and Bankruptcy Board of India (IBBI) under the Companies (Registered Valuers and Valuation) Rules, 2017.

The process for share valuation in India typically involves the following steps:

1. Appointment of a Registered Valuer: The company appoints a valuer registered with IBBI.
2. Determination of Valuation Date: The date as on which valuation is required (e.g., date of transaction).
3. Selection of Valuation Method: Common methods include the Net Asset Value (NAV) method, Discounted Cash Flow (DCF) method, Market Price method, and Comparable Company Analysis.
4. Data Collection: The valuer gathers financial statements, market data, and other relevant information.
5. Valuation Analysis: The valuer applies the chosen method(s) and arrives at a fair value.
6. Valuation Report: A detailed report is prepared, signed by the valuer, and submitted to the company for regulatory filings.

Depending on the purpose, the following forms may be required:

• Form SH-1: For valuation of shares issued for consideration other than cash.
• Form MGT-14: For filing resolutions related to share valuation.
• Form PAS-3: For return of allotment of shares.
• Valuation Report: Prepared by the registered valuer, not a statutory form but a mandatory document.
• Income Tax Forms: For valuation under the Income Tax Act, such as Form 3CEB for transfer pricing.

Share valuation is required in various scenarios:

• Issue of shares to non-residents under FEMA.
• Mergers and amalgamations under the Companies Act.
• Buyback of shares.
• Preference share valuation.
• Tax assessments (e.g., gift tax, wealth tax).
• Dispute resolution (e.g., shareholder disputes). The valuer must be a registered valuer under the IBBI, with qualifications in accountancy, finance, or related fields.

The timeline for share valuation depends on the complexity of the company and the purpose. Generally, the valuation process takes a few weeks to a couple of months. However, no specific timeline is prescribed by law. The valuer must complete the report within a reasonable time as agreed with the company.

The fees for share valuation are not fixed by statute and are negotiated between the company and the valuer. However, the government prescribes a fee for registration of valuers with IBBI. Below is the fee structure for registration:

Note: These are registration fees, not valuation fees. Valuation fees vary based on the scope of work.